No cover for botched real estate deal (USA)

Patrick Bracher from Norton Rose Fulbright.

Where an insurance policy covered an estate agent for acts committed solely ‘in the performance of services as a real estate agent/broker of non-owned properties, for others for a fee’, the Utah Supreme Court denied coverage for an estate agent’s botched deal in which the agent persuaded a company to make an investment in a failed new real estate project.

The plan was to develop the site into individual lots that could later be sold as a group for a profit. After the investors deposited the money the company failed to develop the site as promised and the money was used for other purposes.

In these circumstances the estate agent had not performed services ‘for a fee’.

The court construed the phrase ‘for a fee’ to mean that the real estate agent must have provided services with the expectation of receiving a traditional real estate commission. There was no evidence of such an expectation. The money invested was not a fee and there was no evidence that the estate agent ever expected to receive commission for his role in the transaction.

Coverage was denied.

[The case is William Compton v Houston Casualty Co]

First published by Financial Institutions Legal Snapshot.